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CIRCULAR No

CIRCULAR No. 13/2001/TT-BTC OF MARCH 8, 2001 GUIDING THE IMPLEMENTATION OF TAX PROVISIONS FOR VARIOUS INVESTMENT FORMS UNDER THE LAW ON FOREIGN INVESTMENT IN VIETNAM

Pursuant to the Law on Foreign Investment in Vietnam, passed on November 12, 1996 by the National Assembly of the Socialist Republic of Vietnam; and the Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam, passed on June 9, 2000 by the National Assembly of the Socialist Republic of Vietnam;

Pursuant to the current tax laws and ordinances of the Socialist Republic of Vietnam; as well as the Government�s decrees detailing the implementation of tax laws and ordinances;

Pursuant to the Government�s Decree No.24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;

Pursuant to the Government�s Decree No.36/CP of April 24, 1997 promulgating the Regulation on industrial parks, export-processing zones and hi-tech parks;

Pursuant to the Government�s Decree No.62/CP of August 15, 1998 promulgating the Regulation on Build-Operate-Transfer (BOT) Contracts, Build-Transfer-Operate (BTO) Contracts and Build-Transfer (BT) Contracts applicable to foreign investment in Vietnam, and Decree No.02/1999/ND-CP of January 27, 1999 amending and supplementing a number of Articles of Decree No.62/CP;

The Finance Ministry hereby guides the implementation of tax provisions for various investment forms under the Law on Foreign Investment in Vietnam as follows:

Part I

GENERAL PROVISIONS

1. This Circular shall apply to the following subjects:

- Joint-venture enterprises and enterprises with 100% foreign capital, which are established under the Law on Foreign Investment in Vietnam (hereinafter called foreign-invested enterprises for short).

- Joint-venture banks between Vietnamese banks and foreign banks, which are licensed by the State bodies managing foreign investment under the Law on Foreign Investment in Vietnam.

- Foreign-invested insurance enterprises and insurance brokerage enterprises, which are established and operating under the Law on Foreign Investment in Vietnam and the Law on Insurance Business.

- Joint-venture enterprises established on the basis of agreements concluded between the Government of the Socialist Republic of Vietnam and foreign governments. Where an agreement contains provisions on tax obligations of joint-venture enterprises, which are different from this Circular�s guidance, such agreement�s provisions shall apply.

- Foreign parties to business cooperation contracts (hereinafter referred to as foreign business cooperation parties) under the Law on Foreign Investment in Vietnam.

- BOT, BTO and BT enterprises established under the Law on Foreign Investment in Vietnam. In cases where operation regulations of enterprises issued by the Government or the BOT, BTO or BT contracts already approved by the Government contain provisions on tax obligations other than this Circular�s guidance, such provisions shall apply.

All the above-mentioned subjects shall, depending on each specific context, be called enterprises for short.

Tax obligations of subjects conducting oil and gas prospection, exploration and exploitation in Vietnam under the Petroleum Law shall comply with separate guidance.

2. A number of definitions:

-"Tax calculation year" is the calendar year starting on January 1st and ending on December 31 every year. In cases where enterprises are allowed by the Finance Ministry to apply a fiscal year other than the calendar year, the tax calculation year shall be that fiscal year.

- "The first year with profit in business" is the first fiscal year when an enterprise earns profit, without offsetting losses transferred from the previous years.

- "Market price-free transaction contracts" are the transaction or trading contracts affected by abnormal commercial relationships such as the relationships between associated enterprises, which are bound together by set or imposed conditions other than those set among independent enterprises.

Enterprises shall be considered associated enterprises when:

(i) One enterprise directly or indirectly takes part in the management or control of, or contributes legal capital or stock capital to, another enterprise.

(ii) Two enterprises are subject to the direct or indirect management or control by another enterprise or both enterprises are contributed with capital by another enterprise.

Part II

GUIDANCE FOR THE IMPLEMENTATION OF TAX PROVISIONS

I. ENTERPRISE INCOME TAX

1. Taxable objects:

All income amounts earned from any economic activity of enterprises shall be subject to enterprise income tax.

2. Taxpayers:

Enterprises shall be the payers of enterprise income tax.

In cases where a foreign organization or individual simultaneously invests in different business cooperation contracts, the enterprise income tax shall be calculated separately for each business cooperation contract (including cases where foreign companies set up general executive offices in Vietnam).

3. Determination of taxable income:

Taxable Turnover for Total

income calculation reasonable and

in the tax = of taxable - valid expenses + Other

calculation income in the in the tax incomes

year tax calculation calculation

year year

When determining taxable incomes, enterprises may offset losses of previous years as prescribed in Article 55 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam.

As for foreign business cooperation parties, they may carry forward losses incurred in the fiscal year of 2000 to the subsequent year for each business cooperation contract. For foreign business cooperation parties that apply a fiscal year other than the calendar year, if their 1999-2000 fiscal year ends before July 1, 2000 while losses still arise, such losses of the 1999-2000 fiscal year shall not be carried forward to the subsequent years.

The carrying forward of losses shall be effected according to enterprises� plans. On the basis of its production and business plan, within 15 days after elaborating the final tax settlement report and determining the loss amount incurred in the fiscal year, an enterprise shall take initiative in registering with the tax authority plan for the carrying forward of loss of that fiscal year for deduction from taxable incomes in the subsequent years (within 5 years as from the year following the year when the loss arises) and strictly comply with the already registered loss transfer schedule.

Example: In 2000 enterprise A suffered from a loss of USD 500,000. It is expected that as from 2001, enterprise A starts to earn profit of USD 150,000, then USD 200,000 in 2002, USD 300,000 in 2003, USD 400,000 in 2004 and USD 550,000 in 2005. According to the provisions of its investment license, enterprise A shall be exempt from enterprise income tax for 2 years.

As a result, according to the provisions of Article 48, Decree No.24/2000/ND-CP, enterprise A shall be exempt from enterprise income tax for 2 years of 2001 and 2002 (2001 is the first year with profit in business). Enterprise A may opt for the transfer of its loss in the year 2000 to the years from 2003 to 2005 so as to enjoy the whole tax exemption for 2 years. The year to which its loss will be transferred shall be decided and registered by enterprise A itself (it may transfer the total loss amount of the year 2000 to the year 2005 or divide evenly such loss for the transfer thereof within 3 years from 2003 to 2005).

a/ Turnover for calculation of taxable income in the tax calculation year:

The turnover for calculation of taxable income of an enterprise is the whole proceeds from the sale of goods and provision of services (without value added tax) and other revenues of the enterprise in the tax calculation year.

In a number of specific cases, the turnover for calculation of taxable income shall be determined as follows:

* For goods sold by the mode of installment payment, it is the turnover of the sold goods calculated according to the lump-sum payment selling price, excluding the deferred payment interest.

* For asset-leasing activities such as the lease of houses, offices or infrastructure, it is the rent amount to be collected in each period according to the leasing contract. In cases where the rent is collected in advance for many years, the turnover for calculation of taxable income in each year shall be determined as equal to the advance rent amount divided evenly to the number of years with advance collection.

* For goods or services used for exchange, as donations or gifts, it is calculated according to the selling prices of products, goods or services of the same or equivalent type on the market at the time they are exchanged, donated or presented.

* For products for internal use, it is the production costs of such products.

* For goods-processing activities, it is the money earned from the processing, including remuneration, costs of fuels, power, auxiliary materials and other expenses in service of goods processing.

* For credit activities, it is the loan interest amounts that must be collected in the tax calculation year.

* For insurance and reinsurance business activities, it is the collectible insurance premium principals, expertise agency charge, reinsurance charge, reinsurance commissions and other revenues.

* For business cooperation contracts in form of product sharing, it is the proceeds from the sale of products, which shall be calculated as follows:

+ If the shared products are sold on the Vietnamese market, the turnover shall be determined according to the selling prices of such products on the Vietnamese market.

+ If the shared products are exported to foreign countries, the turnover shall be determined according to the FOB prices at the Vietnamese border gates.

When determining tax obligations of foreign business cooperation parties, if the business cooperation parties fail to provide the products� selling prices or the sale of products fails to comply with the market price-based trading transaction principles, the turnover shall be determined according to the principles prescribed in Section IV, Part III of this Circular.

b/ Reasonable expenses in the tax calculation year:

The expenses related to the generation of taxable income in the tax calculation year of an enterprise, regardless of the applicable accounting regime, shall be determined to include the following:

b1. Depreciation expense and expense for the repair of fixed assets used for production, business and/or provision of services. The fixed asset depreciation rate shall be determined on the basis of such assets� use duration registered by the enterprise itself with the tax authority directly managing it on the principle of straight-line depreciation in accordance with the provisions of the Finance Minister�s Decision No. 166/1999/QD-BTC of December 30, 1999.

b2. Expenses for raw materials, materials, fuels, energy, labor tools and goods actually used in production or services provision related to the taxable turnover and income in the tax calculation year.

b3. Salaries, wages, remuneration and payments of salary and wage nature; mid-shift meal expenses and allowances as well as subsidies paid to Vietnamese and foreign laborers on the basis of labor contracts or collective labor agreements in compliance with the labor legislation applicable to enterprises, which are established and operating under the Law on Foreign Investment in Vietnam.

b4. Expenses for scientific and technological research; innovations; environmental protection; maintenance of storehouses, buildings, fire prevention and fight; education, training and health care, including expenses in outward support of health care and education, such as contributions to study promotion funds, assistance for schools of handicapped, homeless and supportless pupils.

b5. Expenses for services purchased from outside:

- Expenses for power, water, telephone, stationery, audit hiring, printing of documents.

- Liability or property insurance premiums according to insurance policies signed with Vietnamese insurance enterprises or other insurance enterprises licensed to lawfully operate in Vietnam.

- Expenses for hiring the overhaul of fixed assets in order to restore their capacity shall be accounted into production and business costs in the year. If an overhaul-expense amount is too large, the concerned enterprise may make a plan on the distribution thereof to the following years. For particular fixed assets requiring regular repair, the enterprise is entitled to make an advance deduction of the overhaul expense from the production and business costs on the basis of its overhaul expense estimate. If the advance deduction is lower than the actual overhaul expense, the enterprise may additionally account the difference into its expenses; if the advance deduction is higher than the actual overhaul expense, the expenses shall be accounted with decrease in the year.

- The rentals of houses and land for head offices or workshops. In cases where the house- and/or land-renting enterprises pay in advance the rentals for many years, these rentals shall be distributed to each year according to the number of years with the advance payment.

- The rentals of fixed assets (machinery, equipment and facilities), which shall be accounted into the production and/or business costs according to the amounts actually paid under renting contracts. In cases where the fixed asset rental is paid in lump-sum for many years, such rental shall be gradually accounted into the production and/or business costs according to the number of years during which the fixed assets are used.

- Expenses for the procurement of or payment for, technical documents, services or techniques; expenses for copyright and technology transfer; expenses for the use of objects of industrial property such as patents or trademarks under the technology transfer contracts or license contracts already approved by the Ministry of Science, Technology and Environment or the competent agencies.

- Expenses for consultancy or hiring of management companies under the management hiring contracts already approved by the Ministry of Planning and Investment and expenses for hiring other services from outside.

b6. Payments for female laborers as prescribed by law; expenses for labor safety, safeguarding of business establishments; remittances to the funds for social and health insurance for laborers, which fall within the enterprises� obligations, or to the trade union operation fund according to the prescribed regime.

b7. Loan interests within the limit of the ceiling lending interest rate announced by the State Bank of Vietnam for domestic loans; banking fees and loan interest rates paid under credit contracts already approved by the State Bank for foreign loans. If a credit contract has not yet been approved by the State Bank, the interest rate and fee shall be determined according to the actual payments in accordance with the provisions of the credit contract but must not exceed the highest lending interest rate of the State commercial credit institutions.

For joint-venture banks, they are reasonable interest rates and discounts paid for deposits, loans or other financial instruments.

All expenses for interests on loans related to the contribution of legal capital or charter capital (for banking activities) shall not be accounted into the reasonable and valid expenses when determining the taxable profit.

b8. Reserves for the decrease of prices of unsold goods, bad debts or decrease of securities prices at enterprises shall comply with the guidance of the Finance Ministry.

b9. Severance allowance for laborers according to the current regime.

b10. Expenses related to the operation of the Managing Board (for example: expenses for meetings of the Managing Board) of a joint-venture enterprise in compliance with the joint venture�s charter or resolution of the Managing Board.

b11. Expenses directly related to the circulation and sale of products or provision of services such as expenses for goods preservation and packing, loading and unloading, transportation, storehouse and store-yard rent, product or goods warranty.

b12. Expenses for advertisement, marketing, sale promotion, guest reception, festive occasions, transactions, external relations and conferences as well as other expenses, which must not exceed the restricted levels prescribed below:

- For production, construction or transportation enterprises which have newly been established and started operation, they must not exceed 7%, for the first 2 years, then 5%, for the subsequent years, of the total amount of expenses prescribed in Clauses b1 to b11 above.

- For trading, food and drink catering and service business activities, they must not exceed 7%, for the first 2 years after the enterprises� establishment, then 5%, for the subsequent years, of the total amount of expenses prescribed in Clauses of from b1 to b11 above (excluding the cost prices of the sold goods).

- For enterprises in such branches as production and trading of electricity, gas, oil refinement, petrol and oil trading, post and telecommunications as well as aviation, they must not exceed 5%, for the first 2 years after the enterprises� establishment, then 3%, for the subsequent years, of the total amount of expenses prescribed in Clauses of from b1 to b11 above (excluding the cost prices of the sold goods for trading activities).

In some particular cases where these expenses should be restricted to levels higher than the above-mentioned ones, they must be approved in writing by the Finance Ministry, but must not exceed 7% of the total amount of expenses prescribed in Clauses b1 to b11 above.

b13. Contributions to Vietnamese organizations for charity or humanitarian purposes such as contributions to overcoming consequences of natural calamities, accidents; contributions to the funds in support of heroic Vietnamese mothers, families of fallen combatants and people with meritorious services to the revolution, disabled people, homeless and supportless people and funds for social disease prevention and fight.

b14. Payable taxes, charges and fees of tax nature, which are related to production activities, goods trading and/or services provision but do not include: value added tax (VAT), enterprise income tax and tax on income transferred abroad.

Particularly for enterprises engaged in the production and/or trading of goods not subject to VAT or enterprises paying VAT by the direct method, the expenses used for taxable income calculation shall cover also the VAT amount in the input goods and/or services buying prices.

All the above-mentioned expenses must be evidenced by valid vouchers; any expense amount without vouchers or with invalid vouchers must not be accounted into the expenses when determining income liable to enterprise income tax. Enterprises must not account into their expenses fines and expenses which are not related to their turnovers and taxable incomes, such as expenses for capital construction investment and expenses covered by other funding sources. Enterprises established and operating in Vietnam under the Law on Foreign Investment in Vietnam must not allocate the management expenses of their parent companies overseas.

c/ Other incomes:

Other incomes of enterprises include:

c1. Bank deposit and loan interests (excluding enterprises engaged in credit business); interests on deferred payment for sold goods.

c2. Foreign currency purchase and sale difference, securities purchase and sale difference; exchange rate difference under the guidance of the Finance Ministry.

c3. Income earned from the right to own and use the enterprise�s assets, including income from the asset assignment or liquidation. In cases where the enterprise�s assets are lost or damaged due to subjective causes, those losses related to such assets must not be accounted into other incomes and the wrongdoers must be identified to make compensations for the losses according to the prescribed regime.

c4. Income earned from the recovery of bad debts which have already been written off from accounting books, or payable debts, of which the creditors cannot be identified; incomes omitted then discovered from the production and/or business activities in the previous years.

c5. The year-end credit balance of the advance deductions for expenses, which have not been wholly spent in the year.

c6. Incomes earned from activities related to the joint-venture participation or stock investment of an enterprise in other enterprises.

Incomes earned from overseas business activities shall be accounted into other incomes to determine the taxable income.

In cases where the income tax on such income amounts has been paid overseas, an enterprise shall have to determine the pre-income tax income amount earned overseas in order to calculate income tax thereon according to the Law on Enterprise Income Tax in Vietnam. When determining the payable income tax amount, the enterprise may subtract the income tax amounts already paid overseas but the subtracted tax amount must not exceed the income tax amount calculated according to the Law on Enterprise Income Tax for such incomes.

All incomes earned after the payment of enterprise income tax from joint-venture or cooperation activities with domestic enterprises shall not be accounted into other incomes when determining taxable income.

c7. Other incomes related to business but not accounted into turnover, including the customers� bonuses, fines on the violation of contracts, incomes from the sale of discarded materials and faulty products (after deducting sale expenses), gifts in cash presented by organizations and/or individuals to enterprises.

d/ Method of calculating income subject to enterprise income tax in a number of special cases:

For foreign parties to business cooperation, in cases where their business licenses stipulate that they shall pay tax in form of packages payment over the sale turnover, the determination of the taxable income as well as the declaration of tax payment shall be effected according to the provisions of such licenses.

In cases where a foreign party to business cooperation signs a business cooperation contract with a Vietnamese party by the profit-sharing mode and one party is responsible for the common cost-accounting or both parties jointly set up a coordination board for the common cost-accounting, the responsible business cooperation party or the coordination board shall have to declare and pay taxes arising in the business process, make cost-accounting, determine taxable income according to the above guidance and share taxable income according to the contract. Where loss is incurred under the contract, its annual loss amount shall also be shared among concerned parties and the foreign party may transfer its loss to the taxable incomes of the subsequent years for deduction. After receiving its income, the foreign party shall make self-declaration and pay enterprise income tax to the local tax authority.

4. Determination of payable tax amount:

Payable enterprise income Taxable Enterprise

tax amount in the tax = income x income

calculation year tax rate

of which:

- The income subject to enterprise income tax shall be determined according to the provisions at Point 3 above.

- The enterprise income tax rate is specified in the investment license. Where the investment license does not specify the enterprise income tax rate, the enterprise income tax rate of 25% shall apply.

In the course of operation, if a foreign-invested enterprise or a foreign party to business cooperation fails to meet criteria to enjoy preferential enterprise income tax rates and enterprise income tax exemption or reduction as prescribed in Articles 46 and 48 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000, such enterprise shall not be entitled to the preferences. The tax authority directly managing tax collection from the enterprise shall base itself on the conditions for entitlement to enterprise income tax preferences which the enterprise actually meets every year to determine the preferential enterprise income tax rate and settle the enterprise income tax according to that rate, and at the same time report such to the Finance Ministry and the investment licensing body.

For enterprises granted investment licenses before August 1, 2000, if they meet the conditions for preferential enterprise income tax rate and enterprise income tax exemption or reduction prescribed in Articles 46 and 48 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000, they may submit applications to the investment licensing bodies, requesting the adjustment of their investment licenses. Such enterprises shall enjoy preferences for the remaining period after their adjusted licenses take effect.

5. Procedures for registration, declaration and payment of enterprise income tax:

a/ Registration of enterprise income tax:

Enterprises shall have to register enterprise income tax at the time of VAT payment registration with the tax authorities directly managing them. Enterprises shall register the enterprise income tax payment at the tax authorities of the localities where they are headquartered.

b/ Declaration of enterprise income tax:

Not later than the 25th of the first month of each fiscal year at the latest, enterprises shall have to declare and submit declarations of tax amounts temporarily paid for the whole year to the tax authorities of the localities where they are headquartered. The basis for declaration shall be the enterprises� production and business results of the previous fiscal year and their business prospects in the following year.

After receiving the declarations, the tax authorities shall verify and determine the tax amounts temporarily paid for the whole year and notify the enterprises of the tax amounts to be temporarily paid in each quarter. In cases where the enterprises fail to declare or declare unclear basis for determination of the tax amounts to be temporarily paid for the whole year, the tax authorities shall have the right to fix such tax amounts.

Where in the year occur major changes in the taxable incomes, the tax authorities shall adjust the tax amounts to be temporarily paid. The adjustment shall be effected at the request of the enterprises after they make their financial reports for the first 6 months of the year.

c/ Payment of enterprise income tax:

Enterprises shall temporarily pay enterprise income tax once every 3 months, starting from the first day of the tax calculation year. The temporary tax payment shall be made according to the tax payment notices of the tax authorities and by the last day of each quarter at the latest. At the end of the tax calculation year or upon the termination of the contracts, the settlement shall be made according to actual figures.

For business cooperation contracts with a term of under 1 year, the enterprise income tax shall be paid in 2 periods: the first payment shall be temporarily made by the middle of the contractual term and the tax settlement shall be effected upon the expiry of the contracts according to actual figures.

d/ Settlement of enterprise income tax:

The settlement of enterprise income tax shall be made annually according to the provisions in Part III of this Circular.

6. Reimbursement of enterprise income tax as the result of reinvestment:

a/ Foreign investors, who have fully made legal capital contributions under their investment licenses and used other lawful revenues from investment activities in Vietnam for reinvestment in the new or underway projects for 3 years or more, shall be refunded part or whole of the enterprise income tax amounts they have already paid for the reinvested incomes as prescribed in Article 51 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000.

Where foreign investors reinvest in projects licensed before November 23, 1996, the enterprise income tax reimbursement levels shall be as follows:

- 100%, if invested in projects subject to the enterprise income tax rate of up to 14%.

- 75%, if invested in projects subject to the enterprise income tax rate of from 15% to 20%.

- 50%, if invested in projects subject to the enterprise income tax rate of from 21% to under 25%.

b/ The enterprise income tax amount to be reimbursed for the reinvested profit shall be determined as follows:

L

T = ----------------- x S x t

100% - S

Of which:

T: is the income tax amount to be reimbursed.

L: is the after-enterprise income tax profit amount used for reinvestment.

S: is the enterprise income tax rate already applied to the calculation of tax on the reinvested profit amount.

t: is the percentage of enterprise income tax to be reimbursed.

c/ Procedures for reimbursement of enterprise income tax on reinvested profits:

In order to get the enterprise income tax amount that the enterprise has already paid for the reinvested profit, the concerned foreign investor or authorized person shall have to produce all the following documents to the provincial/municipal Tax Department of the locality where the enterprise with reinvested profit is headquartered:

- A written request or application for the reimbursement of enterprise income tax as the result of reinvestment, which clearly states the reasons for reinvestment and the foreign investor�s commitment to use his/her profit for reinvestment for 3 years or more.

- The declaration for income tax reimbursement as the result of reinvestment.

- The investment license or readjusted investment license or written approval issued by the investment licensing body (the copy with certification stamp of the enterprise), which clearly stipulates that the investor is permitted to use his/her profit for reinvestment.

- A written certification of the foreign party�s full legal capital contribution by the Managing Board, for joint-venture enterprises; of the foreign investor�s commitment on the full contribution of legal capital or capital for the performance of the business cooperation contract (together with certification by an auditing organization), for enterprises with 100% foreign capital and foreign business cooperation parties.

- The vouchers (copies with the enterprise�s certification stamp) evidencing tax payment by the enterprise and the State Treasury�s certification of the tax amount already paid by the enterprise.

After fully receiving the above-mentioned documents, within 15 working days, the provincial/municipal Tax Department shall inspect and determine the enterprise income tax amount already paid by the enterprise and calculate the enterprise income tax amount to be reimbursed to the foreign investor, then send the dossier to the Finance Ministry (the General Department of Tax). Within 15 working days after fully receiving the dossier, the Finance Ministry shall consider and issue decision on tax reimbursement for the investor.

* Foreign investors that have transferred their profits abroad or used such profits for other investment or business purposes, which are now recovered for reinvestment, shall not be entitled to the enterprise income tax reimbursement as the result of reinvestment.

* In cases where the enterprise income tax has been reimbursed to foreign investors, who fail to make the reinvestment thereof, such foreign investors shall have to repay to the budget the reimbursed enterprise income tax amounts, including the interests thereon, which shall be calculated as from the time the foreign investors receive the reimbursed enterprise income tax amounts till the time they fully return such amounts to the budget (according to the bank deposit interest rates), and shall be handled according to law.

II. TAX ON PROFITS TRANSFERRED ABROAD

1. Taxable object:

Profits earned by foreign economic organizations or individuals from capital investment in any forms prescribed in the Law on Foreign Investment in Vietnam (including the income tax amounts reimbursed for the reinvested income and income earned from the capital transfer), when being transferred out of the Vietnamese territory or retained outside Vietnam, shall all be subject to this tax.

Cases where foreign parties use the shared profit to pay debts for the parent companies or to cover expenses of the Vietnam-based representative offices of their parent companies shall all be considered the transfer of profits abroad and such foreign parties shall have to pay tax thereon.

Foreign economic organizations or individuals having profits transferred abroad shall have to declare and pay tax on the profit transferred abroad.

2. Determination of the payable tax amount:

The payable amount of tax on the transferred profits abroad shall be determined as equal to the profit amount transferred abroad or considered being transferred abroad, or the profit amount retained by the investor outside the Vietnamese territory, multiplied (x) by the profit transfer tax rate stipulated in the investment license. Where the granted investment license does not specify the tax rate for the profit transferred abroad, such tax rate shall comply with the provisions in Article 50 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000.

For cases where investment licenses which had been granted before August 1, 2000, specify the tax rates for the profits transferred abroad higher than that stipulated in Article 50 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000, the concerned investors or enterprises shall submit their applications to the investment licensing bodies for the readjustment of their investment licenses. Pending the official readjustment, if such investors transfer profit abroad they shall have to send applications to the provincial/municipal Tax Departments, clearly stating the conditions for entitlement to the new tax rate, and declare, pay tax at the new tax rate. The new tax rate for the profits transferred abroad shall apply to profits transferred abroad by the investors as from July 1, 2000.

3. Tax payment procedures:

- Tax on the profit transferred abroad shall be collected upon each transfer of profit abroad. Particularly for cases where investors retain their profit outside Vietnam, pay debts for their parent companies or cover expenses for the latter�s offices in Vietnam, the tax declaration, payment and collection shall be made on the monthly basis.

- Before transferring profit abroad or no later than the 5th of the following month for cases where the profit is used for purposes deemed to be the transfer of profit abroad or the retention of profit outside the Vietnamese territory, the concerned foreign economic organizations or individuals shall have to make and submit tax declarations to the tax authorities directly managing the enterprises, where such economic organizations or individuals have invested capital in, and at the same time, pay the declared tax amount to the State Treasury.

- Within 5 working days after receiving the tax declarations, the tax authorities shall examine them and, if detecting any errors therein, issue notices on the payable tax amounts to the foreign investors. The foreign investors shall have to pay the outstanding tax amounts into the State Treasury according to the tax authorities� notices. In cases where an investor fails to submit the tax declaration within the prescribed time limit, the tax authority may fix the tax amount to be temporarily paid, issue a tax notice and impose a fine on the delayed tax declaration.

The State Treasury shall hand over to the taxpayer a copy of the profit transfer tax payment voucher so that the latter fills in the procedures for the transfer of profit abroad.

- Annually, within 90 days at most after the end of the fiscal year, foreign investors shall have to report to the tax authorities directly managing enterprises on their shared profits, the use thereof and the payment of tax on the profit transferred abroad in the previous years. Such reports shall be submitted to the tax authorities together with the annual tax settlement reports of enterprises.

- In cases where in the annual enterprise income tax declaration already submitted to the tax authority (according to the provisions at Point 5b, Section I, Part II of this Circular), it is expected that the enterprise will earn profit and the investors agree to share its profit quarterly or biannually (as decided in writing by the enterprise�s Managing Board), the foreign investors may, periodically and right in the year, temporarily transfer abroad the shared profits arising in the fiscal year and have to declare the payment of tax on the profits transferred abroad for each time of profit transfer. The shared profit amount temporarily transferred abroad must not exceed 70% of the profit amount which may be shared to a foreign investor and shall be determined on the basis of the quarterly, biannual and annual financial reports of the enterprise.

The enterprise and foreign investor shall have to send (within 25 days after the end of the previous fiscal year) a document to the tax authority directly managing them, requesting the temporary transfer of profit, together with the declaration of the temporary payment of the annual enterprise income tax. The contents of the written request include:

i) The estimate of the profit amount to be earned in the fiscal year, specifically for each quarter and each half of the year;

ii) The estimate of the profit amount to be shared to investors.

iii) The estimate of the shared profit amount to be transferred periodically at the foreign investor�s request (not exceeding 70% of the temporarily shared profit amount);

iv) The resolution of the enterprise�s Managing Board on the plan to share profits to investors in the fiscal year (attached with the written request).

On the basis of the enterprise�s and foreign investor�s above requests, the tax authority shall conduct inspection and guide foreign investor to effect the temporary transfer of profit abroad and collect tax thereon according to the current tax legislation and under the guidance in this Circular.

- Where the foreign investor has paid tax on the profit transferred abroad but has, in fact, not transferred profit abroad or has used the profit for purposes not being considered the transfer of profit abroad, such foreign investor shall be refunded with the already paid tax amount. A dossier of application for reimbursement of the already paid tax amount shall include:

i) A written request for the reimbursement of the already paid tax amount, which must clearly state the reasons for the tax reimbursement; the name, address and account number of the foreign investor requesting the reimbursement of the already paid tax amount.

ii) A list of the paid tax amount attached with vouchers (copies) on money payment to the treasury and the State Treasury�s certification of the already paid tax amount (clearly stating the chapter, category, clause and grade to which the tax has been paid as provided for in the State budget�s contents).

iii) The certification by the bank managing the foreign investor�s deposit money of the non-transfer of profit amount which has already been declared for the payment of tax on the profit transferred abroad by the foreign investor.

The dossier of application for tax reimbursement shall be submitted to the local tax authority directly managing tax collection from the enterprise. The tax authority shall examine the dossier and, if deeming it complete and valid, send it to the Finance Ministry (the General Department of Tax) so that the latter may consider and issue a decision to refund the tax to the foreign investor.

Within 15 days after receiving the complete and valid dossier, the Finance Ministry shall issue a decision on tax reimbursement for the foreign investor.

III. EXPORT TAX AND IMPORT TAX

All goods which foreign invested enterprises and business cooperation parties are permitted to export and/or import across the Vietnamese border, including goods from the Vietnamese market sold to enterprises in export processing zones and goods of enterprises in export processing zones sold into the Vietnamese market, shall be subject to export and/or import taxes, and the goods exporters and importers shall all have to pay taxes according to the provisions of the Law on Export Tax and Import Tax.

1. Export and/or import tax exemption or reduction:

a/ Export tax:

Goods being materials, raw materials, semi-finished products sold by foreign-invested enterprises and business cooperation parties to export-processing enterprises for the production and/or processing of export goods shall be exempt from export tax according to the provisions in Article 8 of the Prime Minister�s Decision No. 53/1999/QD-TTg of March 26, 1999.

Enterprises, when selling goods to export-processing enterprises, shall only have to make and submit export goods declarations to the export processing zones� customs offices. The customs offices shall stamp the "duty-free goods" on the export goods declarations after the goods inspection.

b/ Import tax:

- In addition to the cases of tax exemption or reduction specified in the Law on Export Tax and Import Tax, foreign-invested enterprises and business cooperation parties shall also be entitled to the tax exemption or reduction according to Article 57 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000.

Basing itself on the investment license, economic and technical exposition as well as technical design of each project and the list of the home-made construction materials issued by the Ministry of Planning and Investment, the Ministry of Trade or the authorized agency shall consider and approve the list of duty-free import goods for each enterprise.

Basing themselves on the approved lists of duty-free import goods, the Customs Departments of the provinces and centrally-run cities shall monitor the goods import by enterprises. Quarterly, the provincial/municipal Customs Departments shall have to submit to the Finance Ministry and the General Department of Customs a sum-up report on the export and import turnover as well as the volumes of the major export and import goods items of foreign-invested enterprises.

Particularly, the procedures for import tax exemption for production raw materials of projects on the manufacture of mechanical, electrical and electronic components and spare parts, projects of investment in the geographical areas meeting with exceptional socio-economic difficulties and projects on the list of those particularly encouraged for investment, shall comply with the Finance Ministry�s Circular No. 40/2000/TT-BTC of May 15, 2000 and Circular No. 117/2000/TT-BTC of December 21, 2000.

- Export goods- producing enterprises are allowed temporarily not to pay import tax on raw materials and materials imported for the production of export goods for 9 months (rounded to 275 days according to the solar calendar) as from the date the enterprises receive the customs offices� official tax notices on the payable tax amounts. For a number of products, due to the production requirements or production cycles, the time for temporary non-payment of import tax may be longer than 9 months.

The conditions and procedures for the temporary non-payment of import tax as well as the determination of the 9 month-plus duration of temporary non-payment of import tax on raw materials and materials imported for the production of export goods shall comply with the Finance Ministry�s Circular No. 172/1998/TT-BTC of December 22, 1998 guiding the implementation of the Law on Export Tax and Import Tax.

- Where enterprises sell their manufactured products to other enterprises for the direct production of export goods, they shall be exempt from import tax on the imported raw materials correspondingly to the volume of those goods as provided for in Article 58 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000. The import tax exemption shall be effected as follows:

When importing materials and/or raw materials for the manufacture of products to be sold to other enterprises for the production of export goods, an enterprise shall have to fully pay import tax as prescribed. After the export goods-producing enterprises have already exported their products, the raw materials-importing enterprise shall fill in the procedures and submit a dossier to the Finance Ministry, requesting the reimbursement of import tax on the raw materials imported for manufacturing products sold to the export goods-producing enterprises. The dossier of application for tax reimbursement includes:

+ The enterprise�s written request for tax reimbursement, with clear calculation and inscription of the amount of import tax on raw materials to be reimbursed;

+ The norms on the wasted materials and raw materials for manufacturing products;

+ The import customs declaration and receipt of the import tax payment for materials and raw materials used for the manufacture of products;

+ The contracts on the sale of the enterprise�s products to other enterprises, which clearly state that the products shall be used for the manufacture of export goods;

+ The enterprise�s invoices on goods sale to the export goods-producing enterprises;

+ The export goods customs declarations (notarized copies) of the export goods-producing enterprises with certification by border customs offices of the actually exported goods;

+ The export goods-producing enterprises� declarations on the volume and value of the enterprises� semi-finished products already used for the production of exported goods. The directors of the export goods-producing enterprises shall take responsibility for these declarations.

Basing itself on the above-mentioned documents, the Finance Ministry shall issue decisions to reimburse the import tax to the raw materials importing enterprise.

2. Declaration and retrospective collection of export tax and import tax arrears:

- In cases where export processing enterprises purchase goods, materials and/or raw materials from the domestic market and export them to foreign countries instead of putting them into production and/or processing, they shall have to pay export tax according to the current Law on Export Tax and Import Tax.

- If the import goods of foreign-invested enterprises or business cooperation parties, which have been exempt from import tax as specified in the above-mentioned cases, are used for purposes other than those approved for import tax exemption or sold on the Vietnamese market, the Trade Ministry�s permission is required and the already exempted import tax amounts shall be retrospectively collected.

For goods subject to special consumption tax under the October 28, 1995 Law on Special Consumption Tax and May 28, 1998 Law No. 05/1998/QH10 on Special Consumption Tax, which had been imported duty-free before these laws took effect but were used for purposes other than the initial ones or sold on the Vietnamese market at the time the Law on Special Consumption Tax is already effective, the concerned foreign-invested enterprises or business cooperation parties shall, in addition to the payment of import tax arrears (according to the tax rates currently in force at the time of retrospective collection), have to pay special consumption tax for the goods subject thereto.

- Within 2 working days from the date the import goods are used for purposes other than the purposes for which they are exempt from import tax, or for sale, the concerned foreign-invested enterprises or business cooperation parties shall have to declare with the Customs Departments of the provinces or cities where enterprises are headquartered or where the goods are sold or where the import goods declarations are registered. Past the above time limit, if the enterprises or business cooperation parties fail to make declaration, they shall be sanctioned for tax evasion according to the provisions of the Law on Export Tax and Import Tax as well as the Law on Special Consumption Tax.

- For enterprises manufacturing mechanical, electric or electronic components and spare parts, projects of investment in the geographical areas facing exceptional socio-economic difficulties and projects on the list of those specially encouraged for investment, the already exempted import tax on raw materials and materials in service of production must be declared and settled according to the Finance Ministry�s Circular No. 40/2000/TT-BTC of May 15, 2000.

Where enterprises which have enjoyed the special investment encouragement according to the criterion of exporting more than 80% of products, and the import tax exemption for imported raw materials for 5 years as prescribed in Article 57 of Decree No. 24/2000/ND-CP, manufacture products of different types, only those that really achieve the export percentage of over 80% shall be eligible for the above-mentioned import tax exemption. For products that the enterprises fail to achieve the export percentage of more than 80%, they shall only be exempt from import tax on the raw materials already used for the manufacture of the actually exported products and have to retrospectively pay the import tax temporarily exempted for products consumed in Vietnam.

Enterprises investing in geographical areas facing exceptional socio-economic difficulties but possessing production establishments in localities outside the list of those facing exceptional socio-economic difficulties, shall be entitled to import tax exemption for raw materials under Article 57 of Decree No. 24/2000/ND-CP only for the volume of raw materials imported for the production at their production establishments located in the areas facing exceptional socio-economic difficulties.

- In the course of managing tax collection from enterprises, the tax offices managing the tax collection shall have to monitor the use of tax-free import and export goods; upon detection of any sale of such tax-free goods, the directors of the provincial/municipal Tax Departments shall, besides collecting value added tax according to the provisions of the Law on Value Added Tax, have the right to issue decisions on the retrospective collection of import tax arrears and impose sanctions according to the provisions of the Law on Export Tax and Import Tax.

IV. TAX ON INCOME FROM CAPITAL TRANSFER

Foreign investors that transfer their contributed capital shares in joint-venture enterprises, enterprises with 100% foreign capital or business cooperation contracts and earn incomes shall have to pay tax on the incomes from the capital transfer according to the provisions of this Circular.

1. Enterprise income tax:

Income earned from capital transfer shall be subject to enterprise income tax under the Law on Foreign Investment in Vietnam.

Payable Taxable Enterprise

enterprise = income x income

income tax tax rate

1.1. Taxable income:

Taxable Transfer Initial value of Transfer

income = price - the transferred - expenses

capital amount

Of which:

+ The transfer price shall be determined as the total actual value that the transferor receives under the transfer contract. In cases where the transfer contract does not specify the payment price or the tax authority has grounds to determine that the payment price has not been determined according to the market prices, the tax authority may examine and fix the payment value of the contract on the basis of reference to the market prices or prices for sale to the third party and similar transfer contracts.

+ The initial value of the transferred capital amount shall be determined on the basis of accounting books and vouchers on the investor�s contributed capital at the time of capital transfer, which has already been recognized by the joint-venture enterprise�s managing board, for joint-venture enterprises, or the auditing results of the auditing organizations, for enterprises with 100% foreign capital, or recognized by business cooperation parties in accordance with the current Vietnamese laws.

In cases where the subsequent investors further transfer their contributed capital shares, the initial value of the transferred capital amount in each subsequent transfer shall be determined equal to the value of the preceding transfer contract plus the actual value of any additionally contributed capital (if any) determined on the basis of the principle mentioned in this Clause.

+ Transfer expenses mean the actual expenses directly related to the transfer, according to the original vouchers recognized by the tax authorities. Where the transfer expenses arise overseas, such original vouchers must be verified by a public notary or an independent auditing organization of the country where the expenses arise.

Transfer expenses include expenses for the completion of legal procedures necessary for the transfer; charges and fees payable at the time of filling in the transfer procedures; expenses for transactions, negotiations and conclusion of transfer contracts and other expenses, which are evidenced by valid vouchers.

1.2. Enterprise income tax rate:

The rate of enterprise income tax on income from capital transfer shall be 25%.

2. Tax on profits transferred abroad:

Foreign investors who earn profit from capital transfer, after paying tax on income from capital transfer under the guidance at Point 1 above, when transferring profit abroad or retaining it overseas, shall have to pay tax on the transfer of profit abroad. The rates of the tax on the transfer of profit abroad shall comply with the provisions of the investment licenses.

In cases where foreign investors have neither fully contributed legal capital according to their licenses nor continued their investment but transfer their capital and earn profits therefrom, and transfer abroad the profits earned from their capital transfer, the rate of tax on the profits transferred abroad must be determined according to the actual level of the contributed legal capital at the time of transfer in compliance with the provisions of Article 50 of Decree No.24/2000/ND-CP.

3. Tax declaration and payment:

3.1. Declaration for enterprise income tax payment for income from capital transfer:

The capital transferee shall have to deduct the transferor�s payable tax amount and remit it to the State budget.

Within 5 working days after the competent agency approves the capital transfer, the capital transferee shall have to make and send a tax declaration on capital transfer to the local tax authority managing the enterprise, which shall be enclosed with the transfer contract, the decision approving the capital transfer issued by the competent agency, the certification of the contributed capital and the original vouchers of expenses; and at the same time, fully pay the payable tax amount to the State Treasury then send a copy of the tax payment receipt to the body approving the capital transfer.

Upon detection of any inaccurate declaration or calculation of the payable tax amount, within 5 working days after receiving the declaration, the tax authority shall have to notify the taxpayer of the payable tax amount or request the latter to supply necessary documents in order to determine the accurate payable tax amount.

3.2. Declaration of the payment of tax on the profit transferred abroad: shall comply with the guidance at Point 3, Section II of this Part.

V. OTHER TAXES AND FINANCIAL OBLIGATIONS

Other taxes and financial obligations such as value added tax, special consumption tax, excise tax, natural resources tax, as well as land, water surface and sea surface rentals... applicable to foreign-invested enterprises and foreign business cooperation parties shall comply with the provisions of the current legal documents.

Part III

TAX SETTLEMENT AND INSPECTION OF TAX PAYMENT AT ENTERPRISES

I. ANNUAL TAX SETTLEMENT

At the end of every fiscal year, enterprises shall have to make and send tax settlement reports to the tax authorities. The annual tax settlement shall be carried out according to the contents prescribed below:

1. Within 90 days from the end of the fiscal year, enterprises shall have to submit reports on their production and business situation, accounting reports already audited by an independent auditing organization licensed to operate in Vietnam, declarations of enterprise income tax settlement and reports on the settlement of taxes payable in the year to the tax authorities of the localities where they are headquartered.

Within 10 working days from the date prescribed for the submission of the above-said tax settlement reports, enterprises shall have to pay the outstanding tax amounts according to their settlement reports to the State budget. Past that time limit, if the enterprises fail to make the payment, they, apart from having to fully pay the outstanding tax amounts, shall also have to pay fines for the delayed payment as prescribed.

Enterprises are not allowed to clear the overpayment of one tax against the underpayment of another tax when making their annual tax settlements.

2. On the basis of the enterprises� business and production reports as well as financial settlement reports, the Tax Departments of the provinces and centrally-run cities shall recalculate the amount of each tax payable by enterprises in the fiscal year, and at the same time, compare these amounts with those stated in the tax declarations periodically submitted during the year in order to determine the accuracy of these declarations and tax settlement reports. Where the enterprises� tax settlement reports are inaccurate, the Tax Departments shall organize the inspection of tax payment by enterprises.

II. INSPECTION OF TAX PAYMENT AT ENTERPRISES

In the course of managing tax payment by enterprises, the provincial/municipal Tax Departments shall have to organize regular or irregular tax inspections at enterprises when necessary. They shall, at least once a year, inspect the tax payment by the following subjects:

- Enterprises, which have operated not for long but suffered losses for 3 or more years in a row.

- Enterprises, which are considered key points for tax collection

- Enterprises whose tax settlement reports are inaccurate or unclear, or are not fully inscribed with indexes for the tax calculation.

- Enterprises, which fail to submit their tax settlement reports or have submitted them not on time.

- Enterprises, which see major fluctuation in their financial situation in the tax calculation year as compared to the previous years.

Before inspecting a foreign-invested enterprise or foreign business cooperation party, the tax authority shall have to issue inspection decision, clearly stating the contents and duration of inspection. The inspection decision shall be sent to the concerned foreign-invested enterprise or representative of the foreign business cooperation party at least 3 working days before the inspection begins. Where it is necessary to inspect contents other than those stated in the inspection decision or to prolong the inspection time, the tax authority shall have to issue an additional inspection decision.

Upon the completion of inspection, the tax authority shall have to make and send the enterprise an inspection record, which must be signed by the tax official being the head of the inspection team. The inspection record must also be sent by the tax authority to the Finance Ministry (the General Department of Tax) together with the enterprise�s financial report (copy).

The competent representative of the enterprise shall have to sign the inspection record. If the enterprise disagrees with the tax authority�s conclusions on a number of contents, it may reserve its opinions and inscribe them in the inspection record so as to complain with the tax authority directly managing the tax collection or further complain with the General Department of Tax and the Finance Ministry. Pending the settlement of its complaint, the enterprise or foreign business cooperation party shall still have to strictly comply with the conclusions of the tax authority.

III. TAX SETTLEMENT UPON THE EXPIRY OF OPERATING DURATION OR DISSOLUTION OF ENTERPRISES

Upon the termination of a business cooperation contract by the parties thereto or the expiry of the operating duration or dissolution of a foreign-invested enterprise under the Law on Foreign Investment in Vietnam, within 45 days after the investment licensing body issues the dissolution decision, the concerned foreign-invested enterprise shall have to submit its tax settlement report to the tax authority. The tax authority shall have to immediately proceed with the following jobs:

1. Inspection of the tax settlement report.

2. Determination of interests and responsibilities of each party to the foreign-invested enterprise or business cooperation contract. The major contents of this job include:

- Determination of the investors� investment capital amounts currently on the enterprise�s account(s), including capital in cash, fixed assets, materials and goods. Certification of the investment capital amounts, which the foreign investors may transfer abroad.

- In cases where a foreign party commits to transfer without any refund of its assets to the State of Vietnam upon the expiry of its operating duration but has to terminate operation ahead of time due to force majeure incidents, if such foreign party fails to transfer assets according to its commitment, it must refund the preferences it has enjoyed thanks to the non-refund transfer. The provincial/municipal Tax Departments shall, on the basis of the actual situation of enterprises as well as the provisions at Articles 46, 47, 48 and 49 of Decree No. 24/2000/ND-CP, determine the tax amounts payable by enterprises and send tax notices to the enterprise liquidation boards and the investment licensing bodies.

- Determination of profits or losses as well as the rights and responsibilities of the investors, which are related to such profits or losses. Certification of the income amounts, earned by the foreign investors, which may be transferred abroad. The amount of tax on the transfer of income abroad shall be immediately remitted to the State budget, except for cases where the concerned foreign investors produce vouchers evidencing that such income is not transferred abroad due to one of the following reasons:

+ It is used for reinvestment in Vietnam under decision of the investment licensing body.

+ It is used for personal spending needs in Vietnam, in addition to other incomes already declared.

+ It is used for other purposes in Vietnam.

IV. MEASURES TO DETERMINE MARKET PRICES IN THE TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES

To ensure the correct determination of tax payment obligations of enterprises, during the regular inspection or examination of tax settlement reports of enterprises, if any price or income ratio irrationality is detected in the transactions between associated enterprises, the tax authorities shall apply the following measures to determine the enterprises� taxable incomes:

1. Method of comparing market prices:

The tax authorities may use the market prices of products, goods and/or services to fix the prices of products, goods and/or services exchanged or traded internally between associated enterprises. The conditions for the application of the method of comparing market prices are:

(i) There is no difference between the two compared business operations, which affect the transaction prices such as goods quality, trademarks, conditions for goods delivery and payment relations.

(ii) In case of difference between the two compared business operations, calculation methods may be used to preclude factors, which affect the transaction prices.

Example:

A foreign lubricant company sells to Vietnam-based joint-venture enterprise A (a joint- venture between such foreign company and a company in Vietnam) 1,200 liters of lubricant for USD 1,500, to be paid after 6 months. At the same time, the foreign lubricant company sells to enterprise B, an independent enterprise in Vietnam, 1,000 liters of lubricant for USD 1,000, to be paid immediately. Supposing that the 6-month commercial credit interest rate on the market is 5%, when determining income of joint-venture enterprise A, the Vietnamese tax authority may re-determine the contract lubricant price, based on the comparison with the contract with company B as follows:

Unit price of 1 liter of lubricant with payment made after 6 months:

USD 1,000 + USD 1,000 x 5%

---------------------------------------- = USD 1.05/liter

1,000 liter of lubricant

The price determined for the contract between joint- venture company A and foreign lubricant company B shall be:

1,200 liters of lubricant x USD 1.05/liter = USD 1,260

2. Method of using the selling price to determine the buying price:

In cases where a trade unit buys goods from an overseas associated enterprise and it is impossible to determine the actual buying price of those goods on the free market, the tax authority may use the selling price of the trade unit to determine the buying price according to the following formula:

The selling The selling price

The price of goods of goods sold to The average gross

buying = sold to independent - independent x profit margin

price enterprises (excluding enterprises (excluding of the trade service

import tax, if any) import tax, if any)

The average gross profit margin of the trade service may be determined on the basis of the gross profit margin of other goods purchased by that unit from independent enterprises or the gross profit margin of other independent trade units. The gross profit margin shall be determined according to the following formula:

The gross The net turnover - The cost price of goods

profit = --------------------------------------------------------- x 100%

margin The net turnover

(The data shall be based on the enterprises� reports on business results).

The method of using the selling price to determine the buying price shall not apply to the following cases where:

- The goods and products, before being sold, have already been processed, assembled, transformed or added with more use value;

- The goods and products, before being sold, have been affixed with trademarks, trade names of high value on the market.

- The period between the goods purchase and goods sale lasts for more than 1 year during which the market witnesses a great price fluctuation.

Example: Enterprise A in Vietnam is an enterprise with 100% foreign capital invested by foreign company B which produces liquor. Enterprise A is the sole outlet for company B�s products on the Vietnamese market. In 1999, enterprise A imported from company B 10,000 liters of liquor, paid USD 75,000 for import tax and special consumption tax set by the customs office and sold the whole liquor volume for USD 185,000 as converted turnover in the year. By the end of 1999, the tax authority determined the buying price of the liquor of enterprise A as follows:

The net turnover = The sale turnover � The import tax = USD 185,000 � USD 75,000 = USD 110,000

The selling price USD 110,000

(excluding = ----------------------- = USD 11/liter

import tax) 10,000 liters

Supposing that the average gross profit margin of liquor is 10%

The buying price = USD 11/liter � (USD 11/liter x 10%) = USD 9.9/liter

3. Method of using the total production cost to determine the taxable income:

In cases where an unit produces and/or processes semi-finished products and delivers all to an associated enterprise, without products being sold on the market to determine the comparative price, the tax authority may base itself on the accounting books and records of the unit�s expenses to determine the income of that unit according to the following formula:

The The total The average net

determined = production cost x income rate of the

income of all products production branch

The total The cost The goods The general

production price of delivery management

cost of all = goods + expenses + expenses

products delivered delivered in the period in the period

in the period in the period

The average net income rate of the production branch may be determined on the basis of the data on the net income rates of other independent production enterprises.

The net income rate shall be determined according to the following formula:

The pre-enterprise income tax net income

The net income rate = -------------- ------------------------------------------------

The cost The goods The general

price of the + sale + management

sold goods expenses expenses

(The data shall be based on the enterprises� business results)

Example: Garment enterprise A in Vietnam is a joint -venture between foreign company B and a Vietnamese company. Garment enterprise A produces apparel articles under processing contracts and delivers them all to company B in the foreign country. Presuming that in 1999, enterprise A delivered to company B 10,000 suits at a set price of USD 10/suit. Enterprise A�s 1999 accounting books contain the following data:

The cost price of sold goods: USD 80,000

The goods delivery expenses: USD 6,000

The general management expenses: USD 12,000

The total production cost: USD 98,000

As enterprise A and company B overseas are the two associated enterprises, the tax authority may fix the taxable income as follows:

Presuming that the tax authority determines the average net income rate of the garment industry to be 10%.

The determined income = USD 98,000 x 10%

In cases where price irrationalities are discovered but there exist no conditions for the application of the above-mentioned methods, the tax authority should notify such to enterprises so that the latter may produce the relevant vouchers, and request the enterprises to make written attestations on the legality of the produced vouchers.

Part IV

TAX PAYMENT CURRENCY AND OTHER GUIDANCES

I. TAX PAYMENT CURRENCY

Foreign-invested enterprises and joint-venture business cooperation parties shall pay taxes in Vietnam dong.

Enterprises which are permitted by the Finance Ministry to use foreign currency(ies) in their cost-accounting and book-keeping activities, when making tax declaration, shall have to convert such foreign currency(ies) into Vietnam dong at the time of declaration.

The conversion of a foreign currency into Vietnam dong or vice versa shall be effected at the actual average purchasing and selling rates on the inter-bank foreign currency market as announced by the State Bank of Vietnam on the Nhan Dan (People) daily. For certain days on which the Nhan Dan daily is not published or published without announcement of the exchange rate, the exchange rate applicable to the conversion shall be the preceding day�s exchange rate.

All budget revenues from foreign-invested enterprises shall be accounted into the budget index according to current regulations.

II. RESPONSIBILITIES OF ENTERPRISES

1. Foreign-invested enterprises shall have to strictly comply with the procedures of registration for the granting of tax codes and make tax registration with the tax authorities directly managing them in accordance with current regulations.

2. Within 5 days after changing their goods lines for business or relocating their headquarters, enterprises, their business affiliates or foreign business cooperation parties shall have to fill in the procedures for tax registration with the tax authorities of the provinces or cities where they are headquartered.

3. To strictly comply with all regulations on tax declaration in the course of business and production activities.

4. To produce all accounting books, vouchers and necessary documents related to the tax calculation and settlement at the tax authority�s request.

5. To pay taxes in full and on time as prescribed.

6. To notify the tax authority of the decision on dissolution or expiry of the project�s operating duration, and submit the final settlement report on time.

III. RESPONSIBILITIES AND POWERS OF TAX AUTHORITIES

1. To guide taxpayers to make tax registration and declaration in strict compliance with the prescribed regime.

2. To examine tax declarations, accounting books and vouchers as well as documents necessary for tax calculation, and request taxpayers to explain unclear matters related to the tax calculation.

3. To calculate taxes and notify the taxpayers of the payable tax amounts. To have the right to fix the payable tax amounts in cases where the taxpayers deliberately fail to make tax declaration within the prescribed time limit or make incomplete or inaccurate tax declaration or fail to provide adequate and accurate information related to the tax calculation, or where the revenues are affected by abnormal financial and commercial relations between the associated enterprises.

4. To record in writing and handle tax violations according to their competence prescribed by law.

5. To strictly enforce the tax legislation, ensuring its truthfulness, accuracy and objectivity.

6. To inspect the registration of accounting regimes by enterprises as well as the implementation of the registered accounting regimes.

7. To certify tax amounts already paid by foreign investors at the latter�s request.

IV. HANDLING OF VIOLATIONS AND SETTLEMENT OF COMPLAINTS

1. Violations of tax legislation shall be sanctioned as follows:

- Failure to strictly comply with the provisions on tax registration at Point 1, Section II, Part IV of this Circular shall be sanctioned according to the provisions of the Government�s Decree No. 22/CP of April 17, 1996 on sanctioning administrative violations in the field of tax.

- Failure to comply with the provisions on declaration for tax payment shall be fined according to the provisions of the Ordinance on the Handling of Administrative Violations, the Government�s Decree No. 22/CP of April 17, 1996 and the current guiding documents.

- False declaration or evasion of taxes shall be fined up to 5 times the falsely declared or evaded tax amount.

- Delayed tax payment shall be subject to a fine of 0.1% (one thousandth) of the delayed tax amount for each day of delayed payment.

2. Competence to handle violations and complaints:

- Violations of the tax regulations shall be handled by the tax authorities directly managing tax collection.

- All taxpayers� complaints about taxes shall be considered and settled by the tax authorities directly collecting taxes. Where a taxpayer disagrees with the conclusions for settlement of his/her complaint, he/she shall be entitled to further lodge the complaint to the higher-level tax authority and the Finance Ministry or initiate a lawsuit according to the provisions of law.

In cases where a complaint is lodged to the higher-level tax authority and the Finance Ministry, the Finance Minister�s handling decision shall be the final one. Pending the settlement of his/her complaint by the higher-level tax authority or the Finance Ministry, the complainant shall still have to strictly comply with the settlement conclusions of the lower-level tax authority or the General Department of Tax.

V. ORGANIZATION OF IMPLEMENTATION

The provincial/municipal Tax Departments shall have to popularize the provisions of this Circular to foreign-invested enterprises as well as foreign business cooperation parties and guide them in the implementation thereof.

The provincial/municipal Tax Departments shall have to arrange sections comprising full-time personnel to manage the collection of taxes from foreign-invested enterprises and foreign business cooperation parties. These specialized managerial sections shall have to submit monthly, quarterly and annual reports to the Finance Ministry (the General Department of Tax) on the tax collection situation as well as other reports in service of the general management requirements for foreign-invested enterprises and foreign business cooperation parties operating in their respective localities.

This Circular takes effect 15 days after its signing and replaces the Finance Ministry�s Circular No.63/1998/TT-BTC of May 13, 1998 and Circular No.89/1999/TT-BTC of July 16, 1999.

For the Finance Minister

Vice Minister
VU VAN NINH